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Output decline in Hungary and Poland in 1990-91 : structural change and aggregate shocks

  • Commander, Simon
  • Coricelli, Fabrizio

The authors try to distinguish between general and national features in explaining the impulse, transmission channels, and path of output decline in Hungary and Poland. It is clear that output losses are massively concentrated in the socialized industrial sectors, but they identify significant differences in the distribution of those losses and their associated employment outcomes; in the timing and degree of synchronization of those losses; and in the two countries'different policy responses to these powerful recessionary pressures. In particular, they try to separate shocks particular to a sudden (Polish) big bang and those attributable to a more gradual path of reform (Hungary). The contrast between Hungary and Poland is less robust than initial impressions led one to expect. By 1991, both economies have open trade regimes, and a practically fully liberalized price system. The magnitude of shocks to both economies and the accompanying macroeconomic policies clearly diverged. The role of macroeconomic policies was easier to isolate in 1990, before the full effects of the CMEA shock could be felt. Interestingly, in 1990, the decline in output was far smaller in Hungary than in Poland, and was of rather a different nature. In 1990, employment declined more rapidly than output in Hungary, but lagged sharply behind output in Poland. So productivity increased, albeit marginally, in Hungary, while declining sharply in Poland. Contrary to expectations, the Polish big bang approach has produced less adjustment than the more gradual approach followed by Hungary. One reason for this could be the lack of progress on microeconomic reforms that have accompanied the drastic shift in macroeconomic policies. But the authors suggest that this result could also be associated with the two different paths to reform, the big bang and gradualism.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1036.

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Date of creation: 30 Nov 1992
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Handle: RePEc:wbk:wbrwps:1036
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  1. Bijan B. Aghevli & Eduardo Borensztein & Tessa Van der Willigen, 1992. "Stabilization and Structural Reform in the Czech and Slovak Federal Republic; First Stage," IMF Occasional Papers 92, International Monetary Fund.
  2. Rodrik, Dani, 1992. "Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates," CEPR Discussion Papers 705, C.E.P.R. Discussion Papers.
  3. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 741-777, December.
  4. Commander, Simon & Coricelli, Fabrizio & Staehr, Karsten, 1991. "Wages and employment in the transition to a market economy," Policy Research Working Paper Series 736, The World Bank.
  5. David Lipton & Jeffrey D. Sachs, 1990. "Creating a Market Economy in Eastern Europe: The Case of Poland," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 75-148.
  6. Frydman, R. & Wellisz, S. & Kolodko, G.W., 1991. "Stabilization in Poland: A Progress Report," Papers 4, United Nations World Employment Programme-.
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